Adonis Diaries

Posts Tagged ‘the International Monetary Fund

Two-head world presidency: Time to bite the bitter pills

Global institutions for trade, commerce, and finance have faltered after the latest financial crisis, and the world superpowers were unable to remedy for the dwindling economic production and market stability.

Every powerful nation is acting on his own to stabilizing its internal problems:  cooperation in the many economic and financial summits proved to be weak and short-sighted.

Most powerful States know that soon the world will be led by the two-headed presidency: The US and China. 

The US, supported by the western powers and Japan, will be responsible for the planning and providing the know-how; while China, supported by the Far Eastern countries will be responsible for the execution of the programs and production. 

The emerging powers (vast lands and large population) such as Russia, India, Brazil, Turkey, Nigeria, and Indonesia will play the current role of the US:  Mainly absorbing the excesses in production and exporting the needed raw materials.

Why the US and China?

The US currently dominate the world’s institutions such as the World Bank, the International Monetary Fund, the World Trade and Commerce organization and the most powerful multinational financial institutions; it has the institutions and the know-how for setting the programs in this Capitalist market.

China has the cheap manpower and a dictatorial central power to moving and transferring millions of workers to far away locations in order to quickly execute programs that “democratic” political structures are slow to perform within tight schedules.

Currently, several members of the old club of the G8 (specifically the US and England), within the G20 of the States that grab 80% of global commerce, had implicitly agreed to resume their old-time preferred method for quick money generation: by accelerating speculations on overvalued currencies and higher interest rates in banks of emerging nations such as Brazil, Turkey, South Africa, Argentina, South Korea, Russia, and China.

Thus, the US and England got their money printing machine in full gear, producing liquidity that far exceeds the need of their internal trade market.  They lend money at reduced interest rates (1 to 2%)  to speculative financial institutions so that they invest the money in emerging State banks.

The old club of the G8 are instituting harsh budget cuts affecting primarily the lower middle class in their societies, this class that consumes 70% of internal trade and effectively shoulders the economy.  Thus, economies in the G8 are not to experience any improvement.

The two-head world power system is inevitable; but for this new world order to be swallowed, a major war is to be created for effective demonstration of its feasibility.

Consequently, WikiLeaks has targeted the diffusion of so-called secret foreign policies that are meant to point out the main next enemy (agreed upon by most powerful States such as US, China, and Russia):  Iran.

The North Korean conflict is but a smokescreen or preliminary military joint maneuver by the major States and ironing out the sphere of influence.

Note:  Current currency speculation by major powers has the following consequences:

First, it destabilizes the financial order in the emerging nations and slows down the expansion of its economy with the implicit political message: “You have accelerated your economic plans to counter-weight the political clout of the G8 club.  This policy is premature and done at the wrong timing.  Take a deep breath before confronting us head on so quickly”

Second, the major drawback for the G8 is that their internal trades will be handicapped since liquidity is not infused to the small and medium industries and enterprises that account for real changes in economic development.

How Globalization can function adequately for the poorer countries? 

            Globalization is functioning according unilateral “rules of the games” in international institutions. Joseph Stieglitz, Nobel Prize for economics, had written a book in 2002 “The great disillusion” where he critiques the function and ideology of the international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization.  I have already published reviews in two parts of the book.

 This post focuses on Stiglitz’s recommendations for the international institutions (supposed to be public institutions) to reform in order to give a chance for Globalization to effectively comes to the rescue of the developing States. Thus, in order for world economy and financial stability be the norm then, three urgent reforms are needed.

            First, the international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization have to focus on collective global problems that require collective participation.  For example, when global market economy is not running satisfactorily; when one State harms others and gets away with it (no indemnization procedures) then there are over production of certain commodities and under production of others. We have to tackle defense spending that does not generate any public benefits. 

For example, public education sectors must be financed by international institutions since private sectors have failed to consider that urgent facet in states’ economy.  For example, we have the environment, oceans, atmosphere, CO2 emissions and the other harmful gases, sanitary challenges and discharges, clean water sources, diffusion of contagious diseases, famine, and natural calamities are becoming global problems that require global resolutions and cooperation.  All the global problems are interrelated: poverty leads to degraded environment and deforestation which in return increases poverty.  There are financial interventions that are beneficial locally in reducing local pollution.

            Second, the mode of governance such as control, management, decision-making and administration of international institutions has to be drastically reformed.  The economic and financial interests of developed States have established unilateral set of rules and regulations on how to be applied globally without any serious input from the concerned parties in the developing countries. Developing States were targeted for hegemony behaviors. For example, in the IMF administration it is the finance ministers of the developed States and their central banks governors who are presiding as decision makers. In the World Trade Organization it is the ministers of commerce in the developed countries that run the show: they have particular perspective in matters of global trade.  Who has the right of vote in these international institutions? The poor States and the workers have no representatives in these institutions to offer pertinent alternative feedback as to their difficult situations. The voting rules and representation around the table of decision makers have to be reformed drastically.  The fact is that the IMF is rich because it is the developing countries that are reimbursing their debts at high interest rates.

            At least, reforms in the structures of official direction in the IMF and WB can help in the short-term. For example, African delegates should be allowed to participate and be listened to even if they still cannot vote. Participation in meetings can aid the developing State representatives gather pertinent information and intelligence on world problems may partially fill the gap in intelligence dissemination. The IMF and WB should invest in developing “think tanks” institutions in the developing countries in order for their representative to be at par with ongoing discussions.

            Third, transparency within the international institutions administrations have to be made public since they are public. Public pressures should be directed toward greater transparency in management and decision processes; on time data should be available for the concerned parties and not only for the multinationals and the developed State governments. There is urgent need to open the working environment to independent and free press and researchers of developing countries.  Transparency is best catalyst to encouraging democratic tendencies in developing States and fair availability of information in a timely fashion.

            Thus, favoritism in behavior and focus on the interests of the richer States must be examined and expressed by the public before conditions escalate to global problems. As deliberations in international institutions become accessed directly to larger audiences, instead of being held in closed chambers, then the environmental challenges and the interests of the poorer sections in world societies will be heard and discussed openly. The current decision processes are not critiqued and analyzed by the public on a timely manner: it is generally too late to critique wrong decisions before they are applied.  Public access to timely information and intelligence would pressure the IMF and WB to reconsider their debatable economic assumptions and ideology; so far, what is decided is restricted on “what is good to the financial institutions”. 

Mass protests in World Forums were mainly targeting the secrecy and opacity of the decision processes. So far, the disseminated information by the current structures of the international institutions is viewed with great suspicion by the poor States; so far, reforms were lukewarm and basically the kind of talked intent for reforms but not effective in practice.

How Globalization can function adequately for the poorer countries? (Mar. 24, 2010)

            Joseph Stieglitz, Nobel Prize for economics, had written a book in 2002 “The great disillusion” where he critiques the function and ideological unilateral rules of the games of the international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization.  I already published reviews in two parts of the book; this post focuses on Stiglitz’s recommendations for the international institutions (supposed to be public institutions) to reform in order to give a chance for Globalization to coming effectively to the rescue of the developing States. Thus, in order for world economy and financial stability be the norm then three urgent reforms are needed.

            First, the international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization have to focus on collective global problems that require collective participation.  For example, when global market economy is not running satisfactorily; when one State harms others and gets away with it (no indemnisation procedures) then there are over production of certain commodities and under production of others. We have to tackle defense spending that does not generate any public benefits.  For example, public education sectors must be financed by international institutions since private sectors have failed to consider that urgent facet in states’ economy.  For example, we have the environment, oceans, atmosphere, CO2 emissions and the other harmful gases, sanitary challenges and discharges, clean water sources, diffusion of contagious diseases, famine, and natural calamities are becoming global problems that require global resolutions and cooperation.  All the global problems are interrelated: poverty leads to degraded environment and deforestation which in return increases poverty.  There are financial interventions that are beneficial locally in reducing local pollution.

            Second, the mode of governance such as control, management, decision making and administration of international institutions has to be drastically reformed.  The economic and financial interests of developed States have established unilateral set of rules and regulations on how to be applied globally without any serious input from the concerned parties in the developing countries. Developing States were targeted for hegemony behaviors. For example, in the IMF administration it is the finance ministers of the developed States and their central banks governors who are presiding as decision makers. In the World Trade Organization it is the ministers of commerce in the developed countries that run the show: they have particular perspective in matters of global trade.  Who has the right of vote in these international institutions? The poor States and the workers have no representatives in these institutions to offer pertinent alternative feedback as to their difficult situations. The voting rules and representation around the table of decision makers have to be reformed drastically.  The fact is that the IMF is rich because it is the developing countries that are reimbursing their debts at high interest rates.

            At least, reforms in the structures of official direction in the IMF and WB can help in the short term. For example, African delegates should be allowed to participate and be listened to even if they still cannot vote. Participation in meetings can aid the developing State representatives gather pertinent information and intelligence on world problems may partially fill the gap in intelligence dissemination. The IMF and WB should invest in developing “think tanks” institutions in the developing countries in order for their representative to be at par with ongoing discussions.

            Third, transparency within the international institutions administrations have to be made public since they are public. Public pressures should be directed toward greater transparency in management and decision processes; on time data should be available for the concerned parties and not only for the multinationals and the developed State governments. There is urgent need to open the working environment to independent and free press and researchers of developing countries.  Transparency is best catalyst to encouraging democratic tendencies in developing States and fair availability of information in a timely fashion.

            Thus, favoritism in behavior and focus on the interests of the richer States must be examined and expressed by the public before conditions escalate to global problems. As deliberations in international institutions become accessed directly to larger audiences, instead of being held in closed chambers, then the environmental challenges and the interests of the poorer sections in world societies will be heard and discussed openly. The current decision processes are not critiqued and analyzed by the public on a timely manner: it is generally too late to critique wrong decisions before they are applied.  Public access to timely information and intelligence would pressure the IMF and WB to reconsider their debatable economic assumptions and ideology; so far, what is decided is restricted on “what is good to the financial institutions”.  Mass protests in World Forums were mainly targeting the secrecy and opacity of the decision processes. So far, the disseminated information by the current structures of the international institutions is viewed with great suspicion by the poor States; so far, reforms were lukewarm and basically the kind of talked intent for reforms but not effective in practice.

The greatest illusionists; (September 13, 2009)

The Federal Reserve, the World Bank, the International Monetary Fund, the European Central Bank, The Central Bank of France, and the Central Bank of Germany are spreading false data of economic recovery and financial system improvements, with the main target of cheating the public in order to regain “confidence” on the archaic liberal capitalist system.

For a year now, no substantive regulations on liberal capitalism have been instituted.  The Chairman of the Federal Reserve Ben Bernanke is at it again; he said lately “We should not attempt to impose on credit lenders heavy restrictions that might prevent the development of new financial products and services in the future. We all know that the improvement of easier access to credit has reduced costs and widened the range of choices.”  Are not the liberal new financial gimmicks for easier credit that brought on the crash of 2008 and the several crashes before it?

What “confidence” is these great illusionists trying to resurrect from the tomb without a clear alternative financial system?  So far, bonuses are extended to the financial acrobats crossing dry rivers while employees are sinking in troubled water and not finding decent jobs.

The USA is experiencing an official rate of unemployment of 10%  (the actual rate is hovering around 15%) and the European States are witnessing even higher rates of unemployment, especially in Greece, Spain, Ireland, and Portugal. For 2010, the International Organization of Labor (IOL) is expecting an additional 60 millions of unemployed and an additional 200 millions of people earning below two dollars a day.

The States of California, Illinois, and New Jersey have declared bankruptcy; they lost over 30% of their assets during the financial crash.  These States refused to increase taxes for decades and they are no longer able to increase taxes because of their restricting legislative structures. The Security and Exchange Commission (SEC) is allocated a mere budget of one billion dollars to spend on 3,500 employees. The same SEC that failed to uncover Madoff’s practices for over 30 years and even asked for his expertise many times! There is this joke in the financial circle of Shadock maxim “The more frequently you fail, the higher the odds for success in the future”.

There are several economic time bombs strewn around; they may blast one after another or all together. Among these time bombs we can explain the following: Obligatory Crash, Effective increase of interest rates, Refinancing of public dept, Monetary over valuation, and Newer and botoxed up (lifting) exotic financial derivatives.

The public debts of the USA, France, and Britain are expected to reach 90% of the GNP in a couple of years; Japan will hit the 200% mark. Obligatory Crash is more imminent than forecasted previously. The real values of the treasury bills of these nations designed to refinance the public dept will collapse abruptly.  Chinese households have been saving for two decades and accumulated three folds savings during the last 7 years; these savings are re-invested in purchasing treasury bills of the developed States.

Pretty soon, the citizens of the developed nations will start bypassing their State middlemen and purchase directly Chinese treasury bills for higher returns; especially that the Chinese currency is endemically undervalued and cannot but goes up. Then, what will happen?  Would the USA declare the Chinese treasury bills illegal or not marketable in the US market?  The USA did that previously with other less powerful nations, but antagonizing China is a different ball game.

Effective increase of interest rates has been eating up any economic improvement in the indebted nations. The price of obligations has been decreasing. Let us say if an obligation returned $30 on the thousand and it is re-purchased at half the price for the same return, then the State is effectively paying $60 for the thousand. Thus, with the doubling of the interest rate, States will not find takers for new issues of obligations but by offering the higher interest rate.

When allowed, central banks of States may refinance public debts by purchasing titles on the open market and, thus sustain the prevalent interest rate.  This process is in fact creating new money printing and devaluing the currency value.

The developed nations have  over valuated currencies because they are unable to compete in other emerging markets like China, India, and Brazil. The exterior balance of commerce is thus in deficit and the currency keeps over valuating; it is a vicious cycle unless the developed nations reduce drastically the price of their products to be able to compete.  China is able to keep its currency under valued simply because it can afford to sell at competitive prices.

Before WWI, the economic principle was “Demands carry the economy”.  Then this principle was upturned; it now states “Offers carry the economy” which means “We produce and then we find ways to encourage consumers to purchase.  We entice the consumers by promotional gimmicks, by much lower prices, by creating new trends of standards of living, and by lavishing plenty of credits.”

It worked for a while until what is being produced is getting too expensive, of lower quality, and basically not that essential in tight financial downturns.  How about educating the consumers of what is essential for resuming a decent life without the faked propaganda of what constitute a “high standard of living”?

Note: I read lately that 48 States in the US are bankrupt and the real deficit is 56 trillion instead of the official 13 trillion.

The greatest illusionists; (September 13, 2009)

 

            The Federal Reserve, the World Bank, the International Monetary Fund, the European Central Bank, The Central Bank of France, and the Central Bank of Germany are spreading false data of economic improvements with the main target of cheating the public to regain “confidence” on the archaic liberal capitalist system.  For a year now no substantive regulations on liberal capitalism have been instituted.  The Chairman of the Federal Reserve Ben Bernarke is at it again; he said lately “We should not attempt to impose on credit lenders heavy restrictions that might prevent the development of new financial products and services in the future. We all know that the improvement of easier access to credit has reduced costs and widened the range of choices.”  Are not the liberal new financial gimmicks for easier credit that brought on the crash of 2008 and the several crashes before it?

            What “confidence” is these great illusionists trying to resurrect from the tomb without a clear alternative financial system?  So far, bonuses are extended to the financial acrobats crossing dry rivers while employees are sinking in troubled water and not finding decent jobs. The USA is experiencing an official rate of unemployment of 10% and the European States even higher rates. For 2010, the International Organization of Labor (IOL) is expecting an additional 60 millions of unemployed and an additional 200 millions of people earning below two dollars a day.

            The States of California, Illinois, and New Jersey have declared bankruptcy; they lost over 30% of their assets during the financial crash.  These States refused to increase taxes for decades and they are no longer able to increase taxes because of their restricting legislative structures. The Security and Exchange Commission (SEC) is allocated a budget of one billion dollars to spend on 3,500 employees. The same SEC that failed to uncover Madoff’s practices for over 30 years and even asked for his expertise many times! There is this joke in the financial circle of Shadock maxim “The more you fail the higher the odds for success in the future”.

            There are several economic time bombs strewn around; they may blast one after another or all together. Among these time bombs we can explain the following: Obligatory Crash, Effective increase of interest rates, Refinancing of public dept, Monetary over valuation, and Newer and botoxed up (lifting) exotic financial derivatives.

           

            The public debts of the USA, France, and Britain are expected to reach 90% of the GNP in a couple of years; Japan will hit the 200% mark. Obligatory Crash is more imminent than forecasted previously. The real values of the treasury bills of these nations designed to refinance the public dept will collapse abruptly.  Chinese households have been saving for two decades and accumulated three folds during the last 7 years; these savings are re-invested in purchasing treasury bills of the developed States.  Pretty soon, the citizens of the developed nations will start bypassing their State middlemen and purchase directly Chinese treasury bills for higher returns; especially that the Chinese currency is endemically undervalued and cannot but goes up. Then, what will happen?  Would the USA declare the Chinese treasury bills illegal or not marketable in the US market?  The USA did that previously but antagonizing China is a different ball game.

            Effective increase of interest rates has been eating up any economic improvement in the indebted nations. The price of obligations has been decreasing. Let us say if an obligation returned $30 on the thousand and it is re-purchased at half the price for the same return then the State is effectively paying $60 for the thousand. Thus, with the doubling of the interest rate States will not find takers for new issues of obligations but by offering the higher interest rate.

            When allowed, central banks of States may refinance public debts by purchasing titles on the open market and thus sustain the prevalent interest rate.  This process is in fact creating new money printing and devaluing the currency value.

            The developed nations have monetary over valuated because they are unable to compete in other emerging markets like China, India, and Brazil. The exterior balance of commerce is thus in deficit and the currency keeps over valuating; it is a vicious cycle unless the developed nations reduce drastically the price of their products to be able to compete.  China is able to keep its currency under valued simply because it can afford to sell at competitive prices.

 

            Before WWI the economic principle was “Demands carry the economy”.  Then this principle was upturned; it now states “Offers carry the economy” which means “We produce and then we find ways to encourage consumers to purchase.  We entice the consumers by promotional gimmicks, by much lower prices, by creating new trends of standards of living, and by lavishing plenty of credits.” It worked for a while until what is being produced is getting too expensive, of lower quality, and basically not that essential in tight financial downturns.  How about educating the consumers of what is essential for resuming a decent life without the faked propaganda of what constitutes a “high standard of living”?


adonis49

adonis49

adonis49

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